Ex-Mayor’s Widow Gets $2 Million Tax Break

     WASHINGTON (CN) – Kathleen Sullivan Alioto, widow of former San Francisco Mayor Joe Alioto, will not have to pay more than $2 million in back taxes and penalties assessed by the Internal Revenue Service after her husband’s death. The decision handed down by the U.S. Tax Court last week, nearly 10 years after the former mayor’s death, ends a legal battle with the IRS that began before Kathleen Alioto and the mayor were married.

     Kathleen Sullivan is the daughter of William H. Sullivan, the former owner of the New England Patriots. She was in her thirties when she met Alioto, who was then in his sixties with an ex-wife and six children. While they were married, Kathleen stayed at home, raising their children and taking care of Alioto until his death in 1998.
     Before and after his term as mayor, Alioto was well known as a wealthy power broker and successful antitrust attorney. But however successful he might have been, Alioto left an estate that, at last count, had $74 million in claims against it.
     Kathleen said she believed that their net worth was at least $16 million, but soon discovered that her late husband had spent nearly $18 million dollars paying off the debts of his ex-wife, Angelina, and their children. She also learned that her husband had signed a separation agreement with Angelina Alioto, indemnifying her against any outstanding tax liabilities from the years they were married. This allowed the IRS to seize assets that were in Kathleen’s name to pay for tax debts going back to 1976, when Angelina and Alioto were still married.
     Kathleen was also stuck with joint liability for unpaid taxes from 1988, 1990-91 and 1995-96. She was granted full relief from her liability for 1988 and 1990-91, but was denied relief for 1995 and 1996, leaving her with a personal liability of more than $1.5 million. The probate judge for the estate forced Kathleen to sell her home in 2003 for $6.6 million, $5 million of which was immediately paid to creditors, including $326,000 to Angela Alioto and $2.6 million to the California State Franchise Tax Board.
     After the passage of the Tax Relief and Health Care Act of 2006, which extended jurisdiction for certain kinds of spousal relief from tax liabilities, Kathleen filed for relief from the 1995 and 1996 liabilities, arguing that she should not have to pay for her late husband’s liabilities, particularly after her assets had been used to pay the tax burden of his first wife.
     The tax court had to decide whether Kathleen knew about any notices of liens, levies or seizures of property before her husband’s death. It found that the testimony of IRS officials was not reliable, and that the evidence they relied on in denying Kathleen relief for 1995 and 1996 was neither probative nor credible. But it believed Kathleen’s testimony that Alioto had handled all their financial matters during marriage, and that she had had no reason to doubt that her husband would pay any outstanding taxes or debts.
     Finally, the court reviewed Kathleen’s personal financial circumstances, which included a loss of health insurance and rising medical bills for an epileptic daughter. Concluded that the nearly $2 million IRS levy would make it impossible for Kathleen to pay even basic living expenses or plan for retirement, the court granted her full relief.

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